Annual Financial Report

RNS Number : 3335Q

JPMorgan Glb Emerging Mkts Inc Tst

11 October 2013

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN GLOBAL EMERGING MARKETS INCOME TRUST PLC

ANNOUNCEMENT OF FINAL RESULTS

The Directors of JPMorgan Global Emerging Markets Income Trust plc announce the Company's results for the year ended 31st July 2013.

Chairman's Statement

Performance

I am pleased to report another strong performance for the year to 31st July 2013. The Company recorded a total return on net assets of 14.7%, outperforming the benchmark index, the MSCI Emerging Markets Index with net dividends reinvested (in sterling terms), which produced a total return of 5.4%. The Investment Managers' Report reviews the Company's performance and gives details on the investment strategy and portfolio construction. The total return to shareholders was 12.1%, as the Company's share price increased from 114.25p to 123.00p over the year.

Revenue and Dividends

Gross revenue for the year amounted to £13.7 million (2012: £10.5 million) and net total revenue after finance costs, administrative expenses and taxation amounted to £10.9 million (2012: £8.5 million). Revenue return per Ordinary share for the year, calculated on the average number of shares in issue, was 5.45p (2012: 5.41p).

The Company invests globally, receiving dividends in the currencies of developing countries and US dollars, but is priced and pays dividends in sterling. As such, the value of dividends payable by the Company will fluctuate with exchange rates. During the year, currency detracted from performance by a marginal 0.2%.

In the current financial year the Board has paid two quarterly interim dividends of 0.9p per share and one quarterly dividend of 1.0p per share. On 9th September 2013 it announced the payment of a fourth quarterly dividend of 2.10p per share, payable on 25th October 2013 to shareholders on the register of members as at the close of business on 20th September 2013 (ex-dividend date 18th September 2013). This will bring the total dividend for the year to 4.90p, an increase of 1.0%. The Board is mindful of the Company's continued growth and also shareholders' wish for a regular and more timely income stream. Therefore, the Board decided to pay the fourth quarterly interim dividend in lieu of a final dividend, resulting in the dividend being paid earlier in the Company's financial year.

Management Fee

With effect from 1st August 2013, the performance fee element of the Company's management fee arrangements is being amended. Under the previous arrangements, any performance fee in excess of the cap of 0.75% of net assets was accrued and carried forward to be dealt with in future years. From 1st August 2013, the maximum performance fee that can be earned in any one year will be capped at 0.75% of net asset value and no excess amount will be carried forward. The £1.5 million performance fee carried forward from 31st July 2012 has been waived by the Manager and written back to the Company's income statement through the capital account.

Change of Investment Policy and Gearing

At the General Meeting held on 20th June 2013, shareholders approved a change of investment policy to permit the use of longer term gearing by the Company. During the year, the Company entered into a further loan facility for US$20 million at a fixed rate of 2.88%. Loans totalled US$40 million and the Company's gearing was 7.2% at the year end.

On 8th October 2013, the Company entered into a five year fixed rate loan facility for US$20 million. Loans now total US$60 million, however it is the Board's intention to repay the ING loan of US$20 million at its maturity in November 2013.

Share Capital

During the year, the Company issued a total of 60.65 million new shares at a premium to net asset value. Since the year end, the Company has issued a further 17.1 million shares. On 20th June 2013, shareholders granted authority to issue up to a further 30% of the then issued share capital. This authority will expire at the forthcoming Annual General Meeting and the Board will seek shareholder approval for its renewal. However, in order to comply with the UKLA Listing Rules, the 30% limit will be reset to 10% of the issued share capital on 20th June 2014 (or the number of shares remaining under the 30% authority, whichever is the lesser), when the prospectus issued on 21st June 2013 will expire. More details are given in the Directors' Report. A supplementary prospectus is being published due to this announcement of the Company's annual results and the publication of the Company's annual report and financial statements.

The Board

In accordance with corporate governance best practice, all Directors will seek reappointment at this year's Annual General Meeting. It has been agreed by the Board that, with immediate effect, Paul Wallace be appointed as the Company's Senior Independent Director.

Alternative Investment Fund Managers Directive ('AIFMD')

The Board will announce its progress in relation to the implementation of AIFMD over the next year. It is taking advice on the implications of the new regulations for the Company and is working closely with JPMorgan in this regard. The Board has agreed in principle to appoint JPMorgan as its Manager. Shareholders will also note additional reporting requirements as implementation progresses.

Annual General Meeting

The Annual General Meeting will be held at Holborn Bars, 138-142 Holborn, London EC1N 2NQ on Thursday, 28th November 2013 at 2.00 p.m. The meeting will include a presentation from the Investment Managers on investment policy and performance. There will also be an opportunity for shareholders to meet the Board and representatives of JPMorgan after the meeting.

It would be helpful if shareholders seeking answers to detailed questions put them in writing beforehand, addressed to the Company Secretary at Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. Alternatively, questions may be submitted via the Company's website (www.jpmglobalemergingmarketsincome.co.uk).

Shareholders who are unable to attend the AGM in person are encouraged to use their proxy votes. Proxy votes may be lodged electronically, whether shares are held through CREST or in certificate form and full details are set out on the form of proxy.

Outlook

In recent months the emerging markets have underperformed developed equity markets. The Manager believes that current valuation levels offer the prospect of attractive and superior long term returns. Your Board shares this view.

Three forces tend to determine the long term trajectory of investment returns: valuation, growth (of profits and dividends) and liquidity. In the short run, liquidity prevails: in the long run, valuation trumps both growth and liquidity. Liquidity - the weight of investor money keen to enter these markets - is influenced forcefully by sentiment. Sentiment towards emerging markets is currently antipathetic. It is rooted in multiple concerns, all of which are legitimate: political instability; the implications of less accommodative monetary policies in developed economies; stresses in the Chinese financial system; disorderly capital flows and currency repercussions. The list goes on. However, the history of sentiment in these markets is bipolar. Volatility in this asset class is a fact of life.

When we look at the companies in the portfolio, we see a calmer picture. While it is true that growth in earnings and dividends has slowed, cash flows remain strong and debt levels are below average. This looks like a typical emerging market cycle, not a crisis. The most important feature, highlighted by the Manager, is on valuation. Historically, when the average price-to-book value of companies in these markets stands at today's level of 1.5, subsequent returns have been strong.

Andrew Hutton

Chairman                                                                                                                                                                                           

11th October 2013

Investment Managers' Report

For the financial year, it is pleasing that the Company achieved its income target while also increasing the NAV total return by 14.7%. The Company demonstrated significant outperformance versus its benchmark index, which rose 5.4% during the year. Considering our process is driven from the bottom-up, picking individual stocks, we are pleased that the bulk of the outperformance was derived from stock selection rather than asset allocation.

Performance

Although it is important to remember our country exposure is the result of stock level decisions, country differences were a small positive factor in terms of the Company's relative performance - but were much less important than stock selection. The most positive contributors were the Company's overweight positions in South Africa, Turkey and Poland. In contrast, the most negative contributors were underweight positions in India, Malaysia and Mexico. We remain underweight in these latter three markets because we do not find a wealth of dividend opportunities in them.

Again, sector return differences were not significant in terms of driving the Company's relative returns. We do have major differences in sector positioning (e.g. the largest sector overweights were in the telecommunications and consumer discretionary, while the largest underweight positions were in financials and materials) but in themselves, these did not lead to significant variation in performance. As an example, our overall contribution from telecommunications stocks during the year was strongly positive but this was due to specific stocks chosen for the portfolio rather than holding an overweight position in the sector itself (which actually underperformed slightly in the period).

When looking at the stock contribution to relative performance, it is noteworthy that the outperformance was not driven by just a handful of stand-out names but by multiple contributors. This ties in with our desire for effective diversification within the portfolio - something we think is desirable in what remains a volatile asset class. The top contributors to performance included a Thai telecommunications stock (Advanced Info Service), a Turkish consumer discretionary name (Arcelik) and a Taiwanese electronics company (Novatek Microelectronics). The outperformance of these stocks more than countered the underperformance of companies such as Foschini (a South African clothes retailer), Kumba Iron Ore and Brazilian utilities company AES Tiete.

Dividends

Overall, the receipt of dividends from the holdings in the portfolio was in line with our expectations. A crucial part of our stock analysis is understanding the attitude of management to dividend payouts. Although we understand that dividends can fluctuate in the short term, due to earnings, we monitor each stock to ensure that the rate is not exacerbated by unpredictable payout policies. As this is a key focus of our investment process, it is comforting that the majority of our positions delivered on dividends as expected. However, there were a few disappointments in terms of negative dividend announcements. One example was the Indian consumer discretionary company, Tata Motors, which had reported reasonable operational numbers but decided to lower its dividend by 50% compared with the previous year. In the case of Polish materials company KGHM, the annual tussle between company management and government, in terms of dividend payments, ended with a return lower than expected. In both cases, the significantly increased uncertainty over corporate dividend policy led to a decision to sell the positions.

Portfolio Changes

Portfolio changes over the year have been modest. This is consistent with our desire to invest for the long term and benefit from the compound growth of investee company dividends.

Sales (whether outright or position size reduction) during the year can generally be divided into three types:

(1)  Dividend disappointments as detailed above - thankfully a relatively low number of companies.

(2)  Companies where the fundamental view on dividend sustainability or growth deteriorated relative to other opportunities. An example of this was Petrochina which was sold due to concerns over future sustainability of the dividend payment.

(3)  Companies where our view on dividends remained positive but valuations had increased to the extent that the stocks looked less attractive. A good example of this was the sale of our position in Asur (a Mexican airport operator). Here we continued to have a positive view on the underlying cash flows and dividends but a strong rally in the stock meant a lower and less attractive yield.

Purchases have been much driven by individual stock opportunities. We continue to find many attractive dividend-paying companies in Emerging Markets. We build the portfolio with the aim of having the best combination of dividend yield and dividend growth. Our purchases during the year focused on stocks that improved the profile of the Company from this perspective. New names added to the portfolio during the year included South African consumer discretionary company Imperial Holdings and Sberbank, the dominant banking franchise in Russia).

Outlook

The focus of the portfolio on stable growth from sectors such as consumer discretionary, telecommunications and utilities, rather than the cyclicality of natural resources, has remained constant. Diversification by stock, country and sector is an important part of the portfolio and the Company is expected to continue to invest in 60 to 70 companies over the coming year.

Not surprisingly, the market's concerns and recent currency weakness have led to significant underperformance of emerging market stocks, which now offer valuations that have proven over time to be extremely rewarding entry points for long term investors. For the first time since the global financial crisis of 2008 - 2009, the MSCI Emerging Markets Index is trading below 1.5 times price-to-book value.

Over the past 15 years, instances of such low valuations have been seen almost exclusively during global crises, and the outcome has generally been the same, namely strong performance over the subsequent one and three year periods. While many of the market's current concerns about the asset class are reasonable, they do not amount to a crisis in our view. We believe strongly that current market pessimism and depressed valuations present an opportunity for long term investors like ourselves, even if the short term outlook is somewhat less clear.

Richard Titherington

Investment Manager

Omar Negyal

Deputy Portfolio Manager                                                                                                                                                                       

11th October 2013

Principal Risks

With the assistance of the Manager, JPMorgan Asset Management (UK) Limited ('JPMAM'), the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly into the following categories:

• Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a narrower premium or a discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on. JPMAM provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Managers, who attend Board meetings, and reviews data which show statistical measures of the Company's risk profile. The Investment Managers employ the Company's gearing strategically, within a range set by the Board. During the year, shareholders approved a change of investment policy to permit the use of longer term gearing by the Company.

• Foreign Currency: Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and the currency in which it reports). As a result, movements in exchange rates may affect the sterling value of these items. Cash assets are mainly held in US Dollars, the currency of the loans held by the Company. Therefore, there is an inherent risk from the exchange rates between US Dollars and sterling. No foreign currency hedging is undertaken and this is kept under review by the Board. Further details about the foreign currency risk may be found in note 23 in the Company's Annual Report.

• Financial: The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 23 in the Company's Annual Report.

• Accounting, Legal and Regulatory: In order to qualify as an investment trust, the Company must comply with Section 1158. Details of the Company's approval are given under 'Business of the Company' above. Were the Company to breach Section 1158, it might lose investment trust status and, as a consequence, gains within the Company's portfolio could be subject to Capital Gains Tax. The Section 1158 qualification criteria are continually monitored by JPMAM and the results reported to the Board each month. The Company must also comply with the provisions of the Companies Act 2006 and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure and Transparency Rules ('DTRs'). A breach of the Companies Act could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, JPMAM and its professional advisers to ensure compliance with the Companies Act 2006 and the UKLA Listing Rules and DTRs.

• Corporate Governance and Shareholder Relations: Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Report in the Company's Annual Report.

• Operational: Disruption to, or failure of, JPMAM's accounting, dealing or payments systems or the Custodian's records could prevent accurate reporting and monitoring of the Company's financial position. Details of how the Board monitors the services provided by JPMAM and its associates and the key elements designed to provide effective risk management and internal control are included within the Risk Management and Internal Control section of the Corporate Governance Report in the Company's Annual Report.

Related Party Transactions

During the year under review, the only related party transaction that took place outside the ordinary course of business was the amendment of the Management Agreement with regard to the change of the performance fee element of the management fee arrangement, as detailed above. It was agreed with the UK Listing Authority that, as the maximum performance fee payable in any one year would remain unchanged, the effect of the transaction fell below the threshold for a smaller related party transaction which would have required additional approval from the UK Listing Authority.

Each of the Directors, whose names and functions are listed in the Directors' Report, confirms that, to the best of their knowledge:

(a)    the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards) and applicable law, give a true and fair view of the assets, liabilities, financial position and return or loss of the Company; and

(b)   the Annual Report, to be published shortly, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Andrew Hutton

Chairman

11th October 2013

Income Statement

for the year ended 31st July 2013

	2013				2012
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value
through profit or loss		-	21,718	21,718	-	4,496	4,496
Net foreign currency losses		-	(1,104)	(1,104)	-	(1,035)	(1,035)
Income from investments		13,711	-	13,711	10,530	-	10,530
Other interest receivable and similar income		2	-	2	2	-	2
Gross return		13,713	20,614	34,327	10,532	3,461	13,993
Management fee		(721)	(1,681)	(2,402)	(501)	(1,170)	(1,671)
Performance fee		-	(597)	(597)	-	(2,838)	(2,838)
Other administrative expenses		(550)	-	(550)	(450)	-	(450)
Net return/(loss) on ordinary activities before
finance costs and taxation		12,442	18,336	30,778	9,581	(547)	9,034
Finance costs		(236)	(551)	(787)	(128)	(298)	(426)
Net return/(loss) on ordinary activities
before taxation		12,206	17,785	29,991	9,453	(845)	8,608
Taxation		(1,257)	-	(1,257)	(971)	-	(971)
Net return/(loss) on ordinary activities
after taxation		10,949	17,785	28,734	8,482	(845)	7,637
Return/(loss) per share (note 3)		5.45p	8.85p	14.30p	5.41p	(0.54)p	4.87p

All revenue and capital items in the above statement derive from continuing operations. No operations were discontinued during the year.

The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies.

Statement of Total Recognised Gains and Losses

for the year ended 31st July 2013

	2013			2012
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Movement in fair value of the cash flow hedge	-	52	52	-	19	19
Net return/(loss) on ordinary activities	10,949	17,785	28,734	8,482	(845)	7,637
Total recognised gains/(losses) for the year	10,949	17,837	28,786	8,482	(826)	7,656

Reconciliation of Movements in Shareholders' Funds

for the year ended 31st July 2013

	Called up	Capital
	share	redemption	Share	Other	Capital	Revenue
	capital	reserve	premium	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31st July 2011	1,426	13	40,561	101,276	13,439	3,065	159,780
Issue of Ordinary shares	311	-	33,748	-	-	-	34,059
Expenses of new share issue	-	-	(298)	-	-	-	(298)
Net (loss)/return from ordinary activities	-	-	-	-	(845)	8,482	7,637
Movement in fair value of the cash
flow hedge	-	-	-	-	19	-	19
Dividends appropriated in the year	-	-	-	-	-	(6,546)	(6,546)
At 31st July 2012	1,737	13	74,011	101,276	12,613	5,001	194,651
Issue of Ordinary shares	607	-	74,578	-	-	-	75,185
Expenses of new share issue	-	-	(400)	-	-	-	(400)
Net return from ordinary activities	-	-	-	-	17,785	10,949	28,734
Movement in fair value of the cash
flow hedge	-	-	-	-	52	-	52
Dividends appropriated in the year	-	-	-	-	-	(9,695)	(9,695)
At 31st July 2013	2,344	13	148,189	101,276	30,450	6,255	288,527

Balance Sheet

at 31st July 2013

		2013	2012
		£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		309,721	207,152
Investment in Liquidity Fund held at fair value through profit or loss		1,748	2,904
Total investments		311,469	210,056
Current assets
Debtors		1,942	1,830
Cash and short term deposits		3,874	729
		5,816	2,559
Creditors: amounts falling due within one year		(15,516)	(3,649)
Financial liability: derivative financial instrument		(50)	(102)
Net current liabilities		(9,750)	(1,192)
Total assets less current liabilities		301,719	208,864
Creditors: amounts falling due after more than one year		(13,192)	(12,757)
Provision for liabilities and charges
Performance fees		-	(1,456)
Net assets		288,527	194,651
Capital and reserves
Called up share capital		2,344	1,737
Capital redemption reserve		13	13
Share premium		148,189	74,011
Other reserve		101,276	101,276
Capital reserves		30,450	12,613
Revenue reserve		6,255	5,001
Total equity shareholders' funds		288,527	194,651
Net asset value per share (note 4)		123.1p	112.0p

Company registration number: 7273382

Cash Flow Statement

for the year ended 31st July 2013

		2013	2012
		£'000	£'000
Net cash inflow from operating activities		8,514	6,084
Returns on investments and servicing of finance
Interest paid		(757)	(419)
Net cash outflow from returns on investments and servicing of finance		(757)	(419)
Taxation
Overseas tax recovered		37	19
Total tax recovered		37	19
Capital expenditure and financial investment
Purchases of investments		(226,963)	(130,736)
Sales of investments		145,216	97,035
Other capital charges		(23)	(18)
Net cash outflow from capital expenditure and financial investment		(81,770)	(33,719)
Dividends paid		(9,695)	(6,546)
Net cash outflow before financing		(83,671)	(34,581)
Financing
Proceeds of issue of Ordinary shares		74,679	33,945
Costs of subsequent issue of Ordinary shares		(379)	(298)
Drawdown of loan		12,393	-
Net cash inflow from financing		86,693	33,647
Increase/(decrease) in cash for the year		3,022	(934)

Notes to the Accounts

for the year ended 31st July 2013

1.    Accounting policies

(a)  Basis of accounting

      The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP') and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the AIC in January 2009.

      All of the Company's operations are of a continuing nature.

      The accounts have been prepared on a going concern basis.

2.   Dividends

      Dividends paid and proposed

	2013	2012
	£'000	£'000
2012 Final dividend paid of 2.15p (2011: 1.45p)	3,760	2,198
First interim dividend paid of 0.90p (2012: 0.90p)	1,732	1,380
Second interim dividend paid of 0.90p (2012: 0.90p)	1,908	1,449
Third interim dividend paid of 1.00p (2012: 0.90p)	2,295	1,519
Total dividends paid in the year	9,695	6,546
Fourth interim dividend payable of 2.10p (2012: nil)	4,922	-
Final dividend proposed of nil (2012: 2.15p)	-	3,735

3.   Return/(loss) per share

      Return/(loss) per share is based on the following:

	2013	2012
	£'000	£'000
Revenue return	10,949	8,482
Capital return/(loss)	17,785	(845)
Total return	28,734	7,637
Weighted average number of Ordinary shares in issue during the year	200,902,726	156,827,362
Revenue return per share	5.45p	5.41p
Capital return/(loss) per share	8.85p	(0.54)p
Total return per share	14.30p	4.87p

4.   Net asset value per share

      The net asset value per share is based on the net assets attributable to the Ordinary shareholders of £288,527,000 (2012: £194,651,000) and on the 234,369,438 (2012: 173,719,438) Ordinary shares outstanding at 31st July 2013.

5.   Status of results announcement

2012 Financial Information

The figures and financial information for 2012 are extracted from the published Annual Report and Accounts for the year ended 31st July 2012 and do not constitute the statutory accounts for that year.  The Annual Report and Accounts has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

2013 Financial Information

             The figures and financial information for 2013 are extracted from the Annual Report and Accounts for the year ended 31st July 2013 and do not constitute the statutory accounts for the year.  The Annual Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and Accounts will be delivered to the Register of Companies in due course.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

ENDS

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The annual report will also shortly be available on the Company's website at www.jpmglobalemergingmarketsincome.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

JPMORGAN ASSET MANAGEMENT (UK) LIMITED

 

END

 

 

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